More Americans are Utilizing 401(k) Plans at an Increasing Rate

According to data released by Bank of America, there has been an increase in the number of Americans resorting to their 401(k) plans for financial assistance. CNN reports that the banking giant witnessed a 36% surge in “hardship” withdrawals in Q2 compared to the previous year. In that quarter, 0.52% of all participants, roughly 15,950 individuals, took a hardship distribution. However, BofA Head of Retirement and Personal Wealth Solutions Lorna Sabbia states in a press release, “The data tells two stories: one of balance growth, optimism from younger employees, and maintaining contributions, contrasted with a trend of increased plan withdrawals.”

Generally speaking, Bank of America found that Millennials and Gen Zers increased their contribution rates to their 401(k) plans in Q2. Approximately 19.3% of Gen Zers and 11% of Millennials raised their contribution rates. The average account balance for BofA’s more than 4 million participants in June 2023 was $82,300, up from $75,050 at the end of 2022. In response to these findings, financial advisor Danielle Lucht advises individuals to consider a 401(k) loan as a better alternative to taking money out of their 401(k) in a hardship situation. In Q2, 2.5% of all participants opted for a 401(k) loan, slightly higher than the previous year’s 2.3%.

A hardship distribution from a 401(k) plan can only be made if there is an “immediate and heavy” financial need, and the amount that can be withdrawn is limited to the necessary amount to address that need. A BofA representative informed Newsweek that the current economic environment, characterized by higher rates of inflation and cost of living, may contribute to the rise in hardship withdrawals, considering the specific qualifying reasons for a hardship distribution. (Read more 401(k) plans stories.)